Director Compensation Analysis

14391 Words 58 Pages
Register to read the introduction… We collect data on the annual cash retainer paid to each director, the fee paid for each meeting attended, the number of stock grants, and the number of stock option grants. We value the stock grants, which include restricted and unrestricted shares, by multiplying the number of shares by the closing stock price from the previous fiscal year. We use the modified Black-Scholes model, assuming firms issue option grants at the money and with a ten-year maturity, to value stock options. Firms that offer their directors equity-based compensation generally award stock and stock option grants on a regular annual schedule. Some firms make additional awards on an irregular schedule. We identify two firms in our sample that do not pay any annual compensation, but that make a one-time award of options or restricted stock when a director joins the board. ExecuComp combines additional and one-time awards and presents these data separately from the annual grants. We include these additional awards since we do not wish to ignore a source of incentive compensation that aligns the interests of directors and shareholders. However, as we present later in a robustness section, we repeat our analysis on a sample based only on annual awards with results similar to those reported in the tables. We collect information from the firms’ proxy statements on board size and composition, director affiliations, the CEO’s tenure, and whether the CEO also chairs the board. We …show more content…
4.1.4. CEO/board chair duality and director compensation Directors of firms with dual CEO/Chairs receive more cash compensation ($26,840 compared to $23,075 significant at the 0.01 level). However, the compensation structure does not significantly differ across the two groups. We find no difference in the fraction of firms that use equity-based compensation. Thus, the evidence on the relation between CEO/chair duality and board compensation for the full sample weakly supports, at best, the idea that dual CEO/chairs use their positions to weaken the directors’ incentives to monitor. The results are stronger when we exclude family-controlled firms. The percentage cash retainer for dual CEO/chairs is greater than for separate chairs (significant at the 0.05 level), and the value of equity-based compensation is considerably less ($65,951 compared to $99,612 significant at the 0.05 level). Total compensation for directors is also less when the CEO chairs the board ($94,083 compared to $123,380 significant at the 0.10 level), consistent with the bargaining power prediction. Altogether, the results on duality moderately support the agency hypothesis when we exclude family-controlled firms. Combined with the results for CEO tenure, they underscore the influence of family-control on the relationship between the CEO and the board of

Related Documents